Also, in many applications, it’s suitable to exchange time for memory / compute. You can spend an hour of compute time optimally encoding a 20-minute YouTube video, with no real downside.
Neither of these approaches are suitable for things like video conferencing, where there is a small number of receivers for each encoded stream and latency is critical. At 60fps, you have less than 17ms to encode each frame.
Interestingly, for a while, real-time encoders were going in a massively parallel direction, in which an ASIC chopped up a frame and encoded different regions in parallel. This was a useful optimization for a while, but now, common GPUs can handle encoding an entire 1080p frame (and sometimes even 4K) within that 17ms budget. Encoding the whole frame at once is way simpler from an engineering standpoint, and you can get better compression and / or fewer artifacts since the algorithm can take into account all the frame data rather than just chopped up bits.
This has been an issue with AV1, it's got relatively high decode complexity and there's not a lot of hardware acceleration available. The encode complexity is fantastic though and is very slow even on very powerful hardware, less than 1fps so ~30 hours to encode a one hour video. Even Intel's highly optimized AV1 encoder can't break 10fps (three hours to encode an hour of video) while their h.265 encoder can hit 300fps on the same hardware.
Decoders are relatively simple book keepers/transformers. Encoders are complex systems with tons of heuristics.
This is also why hardware decoders tend to be in everything and are relatively cheap with equal quality to software counterparts. On the flip side, hardware encoders are almost always worse than their software counterparts when it comes to the quality of the output (while being significantly faster).
That's what I meant by my first sentence.
And I'll throw out there that the vast majority of 'hardware codecs' are in fact software codecs running on a pretty general purpose DSP. You could absolutely reach the same quality as a high quality encoder given the right organizational impetus of the manufacturer; they simply are focused on reaching a specific real time bitrate for resolution rather than overall quality. By the time they've hit that, there's a new SoC with it's own DSPs and it's own Jira cards that needs attention. If these cores were more open, I'm sure you'd see less real time focused encoder software targeting them as well.
In MPEG-1's heyday there would haven't been a lot of point in encoding presets producing content common hardware decoders couldn't handle.
There were several other video codecs in the same era that didn't have hardware decode requirements. Cinepak was widely used and could be readily played on a 68030, 486, and even CD-ROM game consoles. As I recall Cinepak encoders had more knobs and dials since the output didn't need to hit a hardware decoder limitation.
One of MPEG-1's design goals was to get VHS-quality video at a bitrate that could stream over T1/E1 lines or 1x CD-ROMs. The limit on bitrate led to increased algorithmic complexity. It was well into the Pentium/PowerPC era until desktop systems could play back VCD quality MPEG-1 video in software.
Later MPEG codecs increased their algorithmic complexity to squeeze better quality video into low bit rates. A lot of those features existed on paper 20-30 years ago but weren't practical on hardware of the time, even custom ASICs. Even within a spec features are bound to profiles so a file/stream can be handled by less capable decoders/hardware.
There's plenty of video codecs or settings for them that can choke modern hardware. It also depends on what you mean by "modern hardware". There's codecs/configurations a Threadripper with 64GB of RAM in a mains powered jet engine sounding desktop could handle in software that would kill a Snapdragon with 6GB of RAM in a phone. There's also codecs/configurations the Snapdragon in the phone could play using hardware acceleration that would choke a low powered Celeron or Atom decoding in software.